What to Know Before Buying a Practice

Physicians must remember that they will be a business owner in addition to being a health care provider.

Purchasing a practice is a huge undertaking that has no assurance of success. Still, it can be a good marketing move. But first, physicians should consider why they want to buy a practice, and whether ownership will suit them.

“Do you want to do it because you feel you can provide better health care, and are you willing to take the risk?” asked Nick Meals, a certified valuation analyst and management consultant with DoctorsManagement, LLC, of Knoxville, Tennessee. “There is no guarantee it will work. Even if you do everything right, things go wrong that you have no control over.”

Physicians must remember that they will be a business owner in addition to being a health care provider. They should be business savvy or have help from individuals who are. “I’ve worked with people who were terrific doctors, but terrible business people, and they might be better working in a system than owning their own practice,” Meals said.

Location, location

A second point to consider is a practice’s location. Physicians need to take demographics into account. Is the population in an area that is growing, stable, or declining? They also should assess whether the local market is already saturated with physicians, and what share of practices is owned by local hospitals. The hospitals will refer most patients to the practices it owns, but physician-owned practices may get the rest of the business in a community, said Keith Borglum, a licensed practice broker, appraiser, and member of the National Society of Certified Healthcare Business Consultants (NSCHBC.org) where many medical practice-acquisition advisors can be found.

Physicians who want to expand their practice by purchasing one should think twice, Borglum said. A practice should have 3 to 5 doctors cover multiple offices comfortably, he said.

“One of the biggest detriments to personal satisfaction is multiple offices,” he said. “You might double the staff without doubling the doctors… the hassle factor is a big problem.”

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Financials

The financial shape of a practice is another important consideration. Meals recommends looking back 2 to 4 years to get a true perspective of its revenue. Physicians also should examine all potential expenses. In addition to staffing, physicians need to think about electronic medical record systems and equipment, and whether any of this will need to be changed, especially if MACRA-compliance is planned. These considerations will help determine how much needs to be spent before opening the door to patients, and will help in estimating income and expenses and determining if net cash flow will be sufficient.

Even if physicians have in-house staff who can guide the purchasing process, outside help may be needed for administration, billing, hiring, equipment purchasing, and accounting. The purchasing process should involve a valuation analyst and a lawyer. A valuation analyst can help establish the true value of a practice. Borglum recommends using a medical practice transaction specialist attorney.

“Practice brokers say they can do the paperwork, and that’s fine for a laundromat or deli, but not a state & federally-compliant medical practice office; that becomes the licensed practice of law.” he said. “A general attorney isn’t going to know some of the peculiarities about price and terms and compensation regarding Medicare laws for the selling physician.”

Meals said a good team can help guide the purchasing process, but cautions that the venture still will not be easy. Physicians considering the purchase of a practice should double whatever length of time they think it will take. Buying a practice typically takes 6 to 9 months.

Staffing

Another point to consider is the people who were, and will be, employed in the acquired practice, according to Borglum. Physicians need to assess whether the office has been adequately staffed and paid. Physicians who purchase a practice should find out if their vision for the acquired office is shared by the staff. If the physicians in the acquired practice are staying on, the new owners need to consider what their responsibilities will be.